Euro zone finance ministers, meeting in Madrid, are to start work on a collective rescue fund, designed to help countries like Greece with financial emergencies, according to the group's president, Jean-Claude Juncker.

"We have agreed that it is necessary to set up a permanent crisis mechanism," Juncker, who is also the prime minister and finance minister of Luxembourg, said after the informal meeting of ministers. The finance ministers of the euro zone are informally referred to as the "euro group", and Juncker serves as its president.

The proposal was suggested on Wednesday by the European economics commissioner, Olli Rehn, after states that use the euro reached an ad-hoc agreement in a weekend conference call to offer bilateral loans to Greece. The International Monetary Fund (IMF) would supplement the 30 billion euros ($40 billion) in loans from the euro zone with extra loans worth up to 15 billion euros.

However, Juncker reiterated on Friday that Greece has not yet requested the deal, which was commissioned in response to growing concern on the markets that Athens would end up defaulting on its debts.

The Stability and Growth Pact, a set of rules designed to secure the prosperity of the euro zone which was introduced along with the single currency, forbids bailouts between member countries, so the EU had to find a way to guarantee low-cost loans instead.

"It was certainly a requirement or pre-condition by euro member states that no contributing country should be making losses," Rehn told reporters in Brussels before leaving for Madrid.

Germany doubts need for rescue

Meanwhile, German Finance Minister Wolfgang Schaeuble, who is not attending the Madrid summit because of health reasons, told German public broadcaster SWR on Friday that the deal might never be used.

"We still believe that the Greeks are on the right track," Schaeuble said. "At the end of the day, they might never even need to take on the offer of aid."

Schaeuble insisted that the German budget would not suffer, should Greece eventually take on the loans. The plan is for member states to borrow money at their market rates and loan it to Greece at an increased level of interest. However, this interest level would still be more competitive than those offered to Athens on the open market.

"We cannot offer any kind of interest-rate subsidies, because doing so would render the euro zone Stability Pact null and void."

The European Commission, European Central Bank and IMF will send officials to Athens on Monday to further discuss aspects of the potential rescue, and to try to ascertain if and when it should be implemented.

msh/dpa/Reuters/AFP
Editor: Chuck Penfold